(Yicai Global) Sept. 24 -- A growing number of Chinese dairy firms turned to overseas markets for sustainable business growth, but acquiring foreign businesses poses unique challenges due to cross-cultural business approaches, legal restrictions and stiff competition. Inner Mongolia's Yili Industrial Group Co. [SHA:600877] is a case in point.

It has come under the spotlight since its announcement of a takeover bid for Murray Goulburn Co-operative Co., known as MG Unit Trust [ASX:MGC], the largest milk processor in Australia.

It offered a bid of AUD1.2 (USD0.95) per unit, almost twice the share price of the MG Unit Trust before the business sale announcement, some media reports claimed. Yili issued a statement clarifying that it did submit a strategic development proposal to Murray Goulburn, but said the reported initial bid price was inaccurate.

MG confirmed in a statement, saying it received several confidential non-binding letters of intent, but none of the bidders offered a bid as high as USD1.2 per unit.

Yili expressed regret that details of the deal have been divulged, a source close to the firm told Yicai Global. The source pointed the finger to rival bidders. This is the second time that Yili's bid for acquisition of foreign firms has been made public. Its bid for American yogurt maker Stonyfield Farm, had also been leaked and one of the rival bidders won the deal in the end by offering a slightly higher price.

Yili aims to speed up its penetration into the Australian market, dairy industry specialist Chen Yu told our reporter. But some agencies may want to "bid up" the price by divulging or fabricating sensitive information, a typical trap that many Chinese companies have stumbled into when bidding for foreign businesses.

However, the Inner Mongolia based dairy group is still interested in acquiring the Australian firm, because globalization is an important strategy at Yili, and the deal will create synergies between the two businesses, the source told Yicai Global.

Headquartered in Victoria, the largest milk producing region in Australia, Murray Goulburn exports products to more than 100 countries and claims an 8 percent share of the global dairy trade market. It has nine world-class dairy plants and is a global leader in several milk processing technologies.

What happened to Yili during its recent couple of overseas acquisition attempts indicates that global market expansion has become increasingly difficult for Chinese dairy firms, opined dairy industry analyst Song Liang.

Foreign businesses fear that Chinese players may pose a threat to major multinationals in emerging markets, Song said. Some foreign dairy companies are tempted to enter China, but they only want to be partners of, not affiliates to, Yili.

Apart from the 'hurdles', as pointed out by a market insider, the equity structure of Murray Goulburn dictates that it cannot be easily acquired and integrated. It is a large farmer cooperative, and its asset quality is good, but its corporate structure makes it difficult for investors to buy the business, and even more so to integrate it after the takeover.